With their three-film, $270 million wager on the Lord of the Rings, are New Line's robert Shaye and Michael Lynne risking the company? Or is this "ultimate macho filmmaking" at its best?

Peter Jackson, director of The Lord of the Rings, says that by the time he met with New Line Cinema co-chairman Robert Shaye, "I was 90 percent sure the film wasn't going to happen." He'd been more or less cut loose from Miramax Films after the studio balked at his plan to make J.R.R. Tolkien's trilogy as a two-film project, but he got the company's blessing to shop his vision elsewhere. "Everyone else had passed," says Jackson. New Line was his last stop.

"I don't think this is for us," Shaye remembers thinking. He invited the New Zealand director into his office, where he told him the project would be a tough sell, because a slice of the profits would have to go to Miramax. Then he brought up Jackson's last movie, The Frighteners. "He didn't like it," the director says. "Usually when you have a meeting, everyone tells you how much they like your films."

Then Jackson showed Shaye a 25-minute production reel of location shots from New Zealand and sample special effects he had put together at his production house, WETA.

"I don't know why you'd want to make two films," Shaye said when the lights came on. He told Jackson to make three.

"That's always the first question," says Michael Lynne, co-chairman of New Line, sitting on a black leather couch in his 57th Street office, a Hollywood-on-the-Hudson throne room with a floor-to-ceiling view of Central Park. "How could we possibly do this?"

What they did was commit in advance to a marathon fifteen-month shoot in New Zealand during which Jackson would make three movies to open Christmas 2001, 2002, 2003. Three movies by a director whose biggest film up to that point was The Frighteners, which cost $30 million and earned $17 million. Three movies starring Elijah Wood as a hairy-footed hobbit. Three movies that eventually cost $270 million.

Shaye, a self-styled maverick with an Easy Rider haircut and a tie knotted just above his sternum, calls the decision an example of "prudent aggression," a motto he had emblazoned on paperweights scattered all over the office. Lynne, looking more the conventional mogul in a crisp white shirt, says that the company hedged its bet by persuading foreign distributors to commit money up front, a funding strategy that's becoming more common in the film business.

"There is no betting of the farm here," says Lynne, a bit fed up with being cast as the gambler. Once they made the merchandising deals and factored in New Zealand's generous tax breaks, Lynne says the company's financial exposure was down to $20 million per movie. "If two movies are going to work -- if they're going to work -- three are going to work. It was smarter creatively, and it was smarter financially."

Even for a much bigger company, putting so much money on a film trifecta would have been scary. (While the two sequels to The Matrix were shot back-to-back, no one had ever green-lighted a trilogy without having had a hit with the first movie.) For New Line, a mini-major with a track record of hip indie pictures (Boogie Nights) and genre fare (Spawn), the stakes are much higher. "It's hard to remember an entity like this taking as significant a risk," says Peter Bart, editor-in-chief of Variety. "It's the ultimate macho filmmaking."

Not all of their international partners had the stomach for that. "There was apprehension," says Rolf Mittweg, New Line's president and COO of worldwide distribution and marketing. When in March 2000 the studio screened a twenty-minute clip for some of the 25 partners in New Zealand, Shaye says the general reaction was " 'Oh, my God, we are so relieved.' "

Now the pressure is coming from AOL Time Warner, New Line's new parent. In 1993, Ted Turner bought the studio for $550 million, and even after Time Warner acquired Turner Broadcasting, Shaye enjoyed almost complete autonomy. "Bob and Michael have been around a long time and no one would suggest they could simply disappear," says Variety's Bart.

But if The Fellowship of the Ring, the first installment of the trilogy, tanks when it opens on December 19, their independence will likely be on the line. Already they were told earlier this year by AOL Time Warner to make layoffs. They were also instructed to clear any budget over $50 million. "We make exceptions," says Richard Parsons, the company COO who will replace Gerald Levin next May. "Austin Powers 3 is an exception. We want the different sensibility -- they do different films than Warner Bros."

If New Line seems an unlikely studio to release a Star Wars-scale blockbuster, The Lord of the Rings seems an unlikely candidate for such aspirations. Running at nearly three hours, Fellowship is faithful to the scope of Tolkien's imaginary world, and Jackson renders Middle-earth with the same supersaturated cinematography he employed in Heavenly Creatures. "Not going with one of the top two or three epic filmmakers," says Shaye -- your Ridley Scotts, your Steven Spielbergs -- "is the kind of risk we have traditionally taken."

So far, the early reviews have been positive and the legions of Lord of the Rings fans are all aflutter. Shaye and Lynne are leery of making any predictions, but they know their franchise could dominate the next three Christmases. "Everything's at stake and everyone knows it," says Lynne. "It's out there in public, and that's the rush."